MULTILATERAL INVESTMENT GUARANTEE AGENCY. Operational Policies

Transcription

1 MULTILATERAL INVESTMENT GUARANTEE AGENCY Operational Policies

2 The Operational Policies became effective on January 6, 2015 following approval by the MIGA Board of Directors. The new Operational Policies replace MIGA s Operational Regulations. MIGA s Policies on Environmental and Social Sustainability and Access to Information that were previously set forth in Annexes B and C to the Operational Regulations do not form part of the Operational Policies and remain as stand-alone policies, accessible at

3 TABLE OF CONTENTS Definitions 1 PART I GUARANTEE OPERATIONS 3 Chapter One: Eligibility Requirements 3 Section I: Eligible Investments 3 General Requirements 3 Type of Investment 3 Eligible Investments under Article 12 3 Equity Interests 3 Shareholder Loans 4 Loan Guarantees or Other Forms of Security Provided by Equity Investors 4 Non-Equity Direct Investment 4 Criteria for Non-Equity Direct Investment 5 Non-Shareholder Loans and Similar Investments 5 Other Forms of Medium- or Long-Term Investments 6 Resources to Be Invested 6 Investment in Monetary Form 6 Investment in Kind 6 Time of the Investment 7 Application for Guarantee 7 Coverage for New and Existing Investments 7 Section II: Eligible Investors 8 Type of Investor 8 Nationality of the Investor 8 Ownership of the Investor 9 Mode of Operations of the Investor 10 Section III: Eligible Host Countries 10 Developing Member Countries 10 Dependent Territories 10 Section IV: Eligible Risks 10 Eligible Risks Under Articles 11(a) and 11(b) 10 Currency Transfer Risk 11 Covered Causes of Loss 11 - i -

4 Operational Policies - Table of Contents Currency and Exchange Rate for the Guaranteed Conversion 11 Risk of Expropriation and Similar Measures 12 Covered Causes of Loss 12 Additional Criteria for Covered Causes of Loss 12 Governmental Regulations 13 Scope of Coverage 13 Breach of Contract Risk 14 Covered Causes of Loss 14 Denial of Justice 14 War and Civil Disturbance Risk 15 Covered Causes of Loss 15 Military Action 15 Civil Disturbance 15 Place of Covered Events 16 Other Non-Commercial Risks 16 Non-Honoring of Sovereign Financial Obligations 16 Non-Honoring of Financial Obligations by a State-Owned Enterprise 16 Non-Enforcement of Arbitral Award Rendered pursuant to Bilateral Investment Treaty 17 Agreement or Responsibility for Actions or Omissions 17 Exclusion of the Risk of Devaluation and Depreciation of Currencies 17 Exclusion of Events Before the Conclusion of the Contract 17 Chapter Two: Contracts of Guarantee 19 Section I: Scope of Contracts of Guarantee 19 Content 19 Consistency with Convention and Policies 19 Section II: Period of Guarantee; Termination and Amendment 19 Period of Guarantee 19 Termination and Amendment 19 Section III: Amount and Currency of Guarantee; Standby Coverage 20 Amount of Guarantee 20 Calculation of the Amount of Guarantee 20 Changes in the Amount of Guarantee 21 Currency of Guarantee 21 - ii -

5 Operational Policies - Table of Contents Standby Coverage 21 Section IV: Representations, Warranties and Undertakings of the Guarantee Holder 21 Representations and Warranties in Connection with Applications or Claims 21 General Undertakings 21 Claims-Related Undertakings 22 Section V: Disputes and Applicable Law 22 Disputes 22 Applicable Law 22 Chapter Three: Underwriting 23 Section I: Introduction 23 Section II: Project Assessment 23 Assessments Required by Article 12(e)(i) (iii) 23 Economic Soundness 23 Contribution to Development 23 Compliance with Legal Requirements 24 Consistency with Development Objectives 24 Reliance by the Agency 24 Section III: Risk Assessment 25 Nature of Risk Assessment 25 Scope of Risk Assessment 25 Assessment of Legal Protection for the Investment 25 Section IV: Procedures Relating to Underwriting Decisions 26 Applications for Coverage 26 Obtaining Host Country Approval 26 Facilitating Prompt Underwriting Decisions 27 Confidentiality and Disclosure of Information 27 Enhancement of Risk Profile 27 Approval of Contracts of Guarantee 28 Approval of Contracts of Guarantee by the President 28 Direction by the Board in the Form of Concurrence 28 Direction by the Board in the Form of Approval 28 President s Report to the Board 29 Board Decision Through Meeting or on a No-Objection Basis 29 - iii -

6 Operational Policies - Table of Contents Expedited Approval Process for Small Guarantees 29 Quarterly Report to the Board on Guarantees 30 Section V: Premiums and Fees 30 Overview and Objectives 30 Determination of Premium and Fees 30 Review of Premiums and Fees 30 Section VI: Guarantee Capacity and Its Allocation 31 Limit of Guarantee Capacity 31 Reinsurance Limits 31 Review 32 Allocation of Guarantee Capacity Among Members 32 Host Countries 32 Section VII: Portfolio Diversification 33 General Requirements 33 Risk Diversification Measures 33 Chapter Four: Claims 34 Section I: Objectives 34 Section II: Claims Administration 34 Actions on Notice of Imminent Losses and on Receipt of Claims 34 Prompt Determination and Settlement 35 Decisions on Claims 35 Pursuit of Remedies by Guarantee Holders 35 Amount of Compensation 36 Documenting Claims and Revising Payments 36 Section III: Subrogation and Assignment 37 Scope and Time of Subrogation and Assignment 37 Extent of Subrogation and Assignment; Recovery in Excess of Payment 37 Section IV: Recovery from Host Countries 38 Decisions on Seeking Recovery 38 Procedures 38 Chapter Five: Parallel and Joint Underwriting, Reinsurance and Administrative Cooperation 39 Section I: General Principles 39 - iv -

7 Operational Policies - Table of Contents Section II: Cooperation with Other Entities 39 Mechanisms and Forms of Cooperation 39 Parallel and Joint Underwriting 40 Reinsurance 40 MIGA as Reinsured Party 40 MIGA as Reinsurer 41 Administrative Cooperation and Brokerage 41 Section III: Administrative Cooperation with the World Bank and the IFC 42 Chapter Six: Guarantees of Sponsored Investments 43 PART II CONSULTATIVE AND ADVISORY ACTIVITIES 44 Chapter Seven: Investment Promotion, Advisory and Consultative Programs 44 Section I: Mandate 44 Section II: Programs 44 Section III: General Principles and Priorities 44 Priorities 45 Policy Consultation 45 Technical and Advisory Services 45 Support of Guarantee Program 45 Administration 45 Section IV: Organization 46 Programming and Budgeting 46 Reporting 46 - v -

8 Operational Policies Definitions OPERATIONAL POLICIES DEFINITIONS In these Operational Policies, unless the context requires otherwise, Agency means the Multilateral Investment Guarantee Agency; Applicant means any person who applies for, or inquires into the availability of, a guarantee from the Agency for such person s own account, or any person on whose behalf such application or inquiry is made; Board means the Board of Directors of the Agency; Convention means the Convention Establishing the Multilateral Investment Guarantee Agency, as amended; Council means the Council of Governors of the Agency; Directive means a statement of substantive directions issued by the Underwriting Authority that mandates, permits or constrains activities of the Agency; Guarantee Holder means the holder of a guarantee issued by the Agency; Guidance means a statement of information issued by the Underwriting Authority that explains a Policy, a Directive or a Procedure, or provides other guidance to staff of the Agency; Host Country or Host Government means a member, its government or any public authority of a member in whose territories, as defined in Article 66 of the Convention, an investment which has been guaranteed or reinsured, or is considered for guarantee or reinsurance, by the Agency is located or is to be located; IFC means the International Finance Corporation; Investment Project means the project or set of projects in which the investment covered or under consideration for coverage has been made or is to be made; Policy means a statement of broad substantive principles issued by the Board that mandates, permits or constrains activities undertaken to achieve institutional goals with respect to matters falling under the Board s authority; President means the President of the Agency; Procedure means a set of procedural instructions issued by the Underwriting Authority that must be followed to implement a Policy or a Directive, or both; Project Enterprise means a corporation, association, partnership or any other entity which holds title to, or the power to dispose of, the assets contributed to the Investment Project; $ means dollars in the currency of the United States of America; - 1 -

9 Operational Policies Definitions Underwriting Authority means the President or any official or officials of the Agency designated by the President to make the decision on the issuance of a guarantee and on related matters; and World Bank means the International Bank for Reconstruction and Development

10 Operational Policies Chapter 1 PART I GUARANTEE OPERATIONS Chapter One: Eligibility Requirements Section I: Eligible Investments General Requirements 1.01 To qualify for coverage under Article 12 of the Convention, investments must meet certain requirements with respect to: (i) (ii) the type of investment; the resources to be invested; and (iii) the time of the investment. Type of Investment Eligible Investments under Article (a) Article 12(a) of the Convention provides that eligible investments shall include: (i) equity interests pursuant to Paragraphs 1.03 and 1.04; (ii) shareholder loans pursuant to Paragraph 1.05; (iii) guarantees or other forms of security provided by a holder of equity in the Project Enterprise to secure loans made to the Project Enterprise pursuant to Paragraph 1.06; and (iv) non-equity direct investment pursuant to Paragraph (b) Non-shareholder loans shall be eligible in accordance with Article 12(b) of the Convention under the conditions referred to in Paragraph 1.09 below. (c) In addition, Article 12(c) of the Convention authorizes the Board to decide on the eligibility of other forms of medium- or long-term investment under the conditions referred to in Paragraph 1.10 below. Equity Interests 1.03 Equity interests are eligible for cover irrespective of the legal form of the Project Enterprise and there is no minimum percentage requirement with respect to the Applicant s ownership interest in the Investment Project Cover extends to the following forms of equity interests: - 3 -

11 Operational Policies Chapter 1 (i) shares or ownership interests in a corporation or other entity with juridical personality which is established in the Host Country; (ii) rights to participation in the profits and liquidation proceeds of any joint venture in the Host Country; (iii) ownership rights in the assets of an unincorporated branch or other establishment of the investor in the Host Country; (iv) ownership rights in assets that the investor has transferred into the Host Country and that will be used inside the Host Country for productive purposes for more than one year; (v) portfolio as well as direct equity investments, including minority participation in joint ventures, preferred stock and shares resulting from the conversion of debt instruments, with preference among portfolio investments given to those associated with foreign direct investment; and (vi) other forms of equity or quasi-equity interests, as may be approved by the Board. Shareholder Loans 1.05 Loans made by holders of equity in the Project Enterprise to the Project Enterprise are eligible for cover where the loan has a tenor of more than one year. Loan Guarantees or Other Forms of Security Provided by Equity Investors 1.06 Guarantees or other forms of security provided by a holder of equity in the Project Enterprise to secure loans made to the Project Enterprise are eligible for cover where the loan has a tenor of more than one year. Non-Equity Direct Investment 1.07 Subject to the criteria stated in Paragraph 1.08, the Agency s guarantees may be issued for the following forms of non-equity direct investment: (i) (ii) production-sharing contracts; profit-sharing contracts; (iii) management contracts; (iv) franchising agreements; (v) licensing agreements; (vi) engineering, procurement and construction contracts, turnkey contracts and related performance bonds; (vii) operating leases; - 4 -

12 Operational Policies Chapter 1 (viii) subordinated debt instruments with mean repayment periods of more than one year that are issued by the Project Enterprise to an equity investor or a person making any other eligible form of non-equity direct investment in the Investment Project; (ix) guarantees or other forms of security provided for loans to the Project Enterprise where the loan has a tenor of more than one year and which are made by a person making any eligible form of non-equity direct investment pursuant to this Paragraph 1.07 in the Investment Project; and (x) such other forms of non-equity direct investment as may be approved by the Board. Criteria for Non-Equity Direct Investment 1.08 (a) In determining the eligibility of non-equity direct investments pursuant to Paragraph 1.07, the Underwriting Authority shall issue coverage only for investments that: (i) have terms of more than one year; and (ii) depend substantially on the production, revenues or profits of the Investment Project. (b) Non-equity direct investments that are otherwise eligible, but do not meet the requirement specified in Paragraph 1.08(a)(ii) shall be eligible for coverage if: (i) in case of licensing agreements as referred to in Paragraph 1.07(v) above, the licensing agreement is associated with an otherwise eligible investment of the licensor in the Investment Project; and (ii) in case of engineering, procurement and construction contracts, turnkey contracts and related performance bonds as referred to in Paragraph 1.07(vi) above, the contractor assumes responsibility for the performance or the operation of the Investment Project at specified standards of efficiency for a period of more than one year after its completion. (c) In no case shall the Agency provide coverage of this type, which, in its judgment and in the light of appropriate consultation, can be obtained from a government or an official export credit insurance agency of a member. Non-Shareholder Loans and Similar Investments 1.09 (a) Loans other than those eligible for cover under Article 12(a) of the Convention are eligible for coverage pursuant to Article 12(b) of the Convention. (b) The term loans as used in Article 12(b) of the Convention includes: (i) loans made to a Project Enterprise by banks, financial institutions or other persons that are not holders of equity in the Project Enterprise; (ii) guarantees or other forms of security provided by persons that are not holders of equity in the Project Enterprise to secure a loan made to the Project Enterprise where the loan has a tenor of more than one year; - 5 -

13 Operational Policies Chapter 1 (iii) other forms of debt instruments; (iv) other financial transactions whose commercial function and objective is equivalent in all material respects to a loan; and (v) swap and other hedging transactions related to any of the other forms of investment that are covered by the Agency pursuant to subparagraphs (i) through (iv) above. (c) The investments referred to in Paragraph 1.09(b) above shall have a minimum tenor of more than one year. (d) The Board s approval by special majority pursuant to Article 12(b)(ii) of the Convention for the coverage of the investments referred to in Paragraph 1.09(b) above may be issued either with respect to a particular case or as a general authorization for cover. Other Forms of Medium- or Long-Term Investments 1.10 (a) The Agency may cover engineering, procurement and construction contracts, turnkey contracts and related performance bonds (other than those referred to in Paragraphs 1.07(vi) and 1.08(b)) as an eligible form of medium- or long-term investment if such investment has a tenor of more than one year. (b) The Agency may also cover swap and other hedging transactions entered in connection with interest rate and currency risks with a tenor of more than one year if any such transaction is related to an underlying investment whether or not covered by the Agency. (c) Any other medium- or long-term form of investment that does not qualify for coverage under Article 12(a) or (b) of the Convention may, pursuant to Article 12(c) of the Convention, be covered if the Board so approves by special majority. (d) The Board s approval for cover of such investments may be issued either with respect to a particular case or as a general authorization. Resources to Be Invested Investment in Monetary Form 1.11 Investments eligible for coverage may be made in any freely usable currency within the meaning of Article 3(e) of the Convention, or in any other currency that at the time of the decision on the issuance of the guarantee is freely convertible. Investment in Kind 1.12 Investments, to qualify for cover, need not be made in monetary form. They may take the form of contributions to the Investment Project of any tangible or intangible property, contract rights or other assets that have a monetary value. For the purpose of coverage, the monetary value of such investment in kind must be determined in terms of the currency in which the guarantee is issued

14 Operational Policies Chapter 1 Time of the Investment Application for Guarantee 1.13 (a) In accordance with Article 12(d) of the Convention: (i) an investment is eligible for cover as a new investment to the extent it is implemented subsequent to the Agency s registration of the application for a guarantee; and (ii) an investment is eligible for cover as an existing investment (together with a new or additional investment or on a stand-alone basis, as the case may be) if the requirements referred to in Paragraph 1.14 below are met. (b) For the purposes of subparagraph (a) an investment shall generally be deemed to be implemented at the time when, and to the extent that, funds or other resources are contributed to the Investment Project. (c) The Agency shall consider the date of the registration of the application for a guarantee when determining to what extent the investment is new or existing. (d) The Applicant shall be deemed to have filed an application on the date on which the Agency determines that it has received satisfactory evidence (particularly by correspondence or ) of the investor s intent or interest to obtain a guarantee from the Agency. (e) Where a project involves multiple investors, the extent to which an investment is new or existing shall be determined separately for each investor as of the date when that investor s application for a guarantee is registered. (f) The Agency shall have registered an application for a guarantee covering the acquisition of an existing Investment Project as referred to in Paragraph 1.14(a)(iii) below prior to the date on which the acquisition closes. Coverage for New and Existing Investments 1.14 (a) In accordance with Article 12(d) of the Convention, the Underwriting Authority may consider as eligible the following investments: (i) an investment in an existing Investment Project if the investment is used to modernize, expand, enhance the financial viability of or otherwise develop such existing Investment Project, in which case both the original investment and the additional investment may be considered eligible for coverage; (ii) earnings from an existing investment in the Host Country if such earnings could otherwise be transferred outside the Host Country at the time of the decision on the issuance of the guarantee for such earnings; (iii) the acquisition of all or part of an existing investment or Investment Project by a new eligible investor; - 7 -

15 Operational Policies Chapter 1 (iv) existing investments where an eligible investor is seeking to insure a pool of existing and new investments; (v) existing investments owned by an eligible investor, where the investor has not made a new investment that is eligible for coverage but: (a) has modernized, expanded, enhanced the financial viability or otherwise developed or improved the Investment Project (regardless of when such measures were implemented); or (b) demonstrates a medium- or long-term commitment to the Investment Project, provided that in either case the Underwriting Authority is satisfied that the Investment Project continues to have a high developmental impact in the Host Country; and (vi) such other investments as may be approved by the Board by special majority either with respect to a particular case or as a general authorization for cover. (b) The Agency may increase the amount of guarantee with respect to an existing investment that is already covered by the Agency for the same Guarantee Holder (regardless of whether such Guarantee Holder has made a new investment or not). Such increase in the amount of guarantee shall be subject to the Board s approval or concurrence if required pursuant to Paragraphs 3.32, 3.33 or The Agency also may issue guarantees for restructured investments it originally guaranteed, even where there is no new or additional investment, where those restructurings result from a claims settlement or dispute resolution process related to the original investment. Section II: Eligible Investors Type of Investor 1.16 Investors eligible to receive a guarantee may be either natural or juridical persons. Partnerships, which are not treated in essential respects as juridical persons under the law governing them, unincorporated associations and branches are not eligible as such. In such cases, eligibility is confined to the individual partners, members of the association and owners of the branch. Where in these cases some investors are eligible while others are not, a guarantee may be issued for such portion of the investment as corresponds to the eligible investors share in the Investment Project. Nationality of the Investor 1.17 (a) In accordance with Article 13(a) of the Convention and subject to Paragraph 1.18 below, a natural person, to qualify for a guarantee, must be a national of a member of the Agency other than the Host Country

16 Operational Policies Chapter 1 (b) A juridical person: (i) must be incorporated or established, and have its principal place of business, in a member of the Agency other than the Host Country; or (ii) if such person does not meet the test in (i) above, the majority of its capital must be owned by a member or members, or nationals of a member or members, other than the Host Country. (c) In either case, the Agency shall advise the Host Country of the Applicant s link with the Host Country, together with the request made in accordance with Paragraph 3.23 below for the Host Country s approval of the issuance of the guarantee In accordance with Article 13(c) of the Convention, upon the joint application of the investor and the Host Country, the Board may, by special majority, extend eligibility to a natural person, who is a national of the Host Country, or to a juridical person, which is not eligible under Paragraph 1.17 above and is incorporated or established in the Host Country or the majority of whose capital is owned by its nationals, provided that the assets to be invested are transferred from outside the Host Country. Ownership of the Investor 1.19 In determining ownership of an investor, the Underwriting Authority shall have regard to beneficial rather than record ownership. In the case of a share corporation, a person shall be deemed to be the beneficial owner if the benefits from the shares accrue to such person and such person has the right of recapturing the shares. For example, in the case of shares held by brokers or banks for their customers, the customer, rather than the intermediary, shall be deemed to be the owner. If, however, the beneficial owners of the Applicant cannot be identified without undue cost or delay, the beneficial owners may be presumed to have the same nationality as the record owners. If neither beneficial nor record ownership can be determined without undue cost or delay, as in the case of bearer shares, the Applicant may be presumed to be chiefly owned by nationals of members other than the Host Country if such nationals have held the majority of the votes registered at the most recent shareholders meeting of the Applicant (a) In accordance with Article 13(a) of the Convention, juridical persons need not be privately owned to qualify for coverage. They may also be owned: (i) (ii) jointly by a member and private persons; wholly by a member; (iii) jointly by several members; or (iv) jointly by several members and private persons. (b) For the purpose of subparagraph (a), the term member includes any agency or entity owned or controlled by a member

17 Operational Policies Chapter 1 Mode of Operations of the Investor 1.21 Article 13(a)(iii) of the Convention provides that in all cases the investor must operate on a commercial basis. Where the majority of the equity in the investor is privately owned, the investor may be assumed to operate on a commercial basis, provided that, in the case of a non-profit organization, a guarantee may only be issued if it is established that the specific investment for which coverage is sought will be carried out on a commercial basis. Where the majority of the equity in the investor is publicly owned, the Underwriting Authority must determine whether the Applicant operates on a commercial basis. Where the investor carries out some operations on a commercial basis and others on a non-commercial basis, it shall be eligible only in respect of investments that form part of its commercial operations. Section III: Eligible Host Countries Developing Member Countries 1.22 In accordance with Article 14 of the Convention, an investment, to qualify for coverage, must be made in the territory of a member that is classified as a developing member country in Schedule A to the Convention, as this Schedule may be amended from time to time, or by resolution of the Council. Dependent Territories 1.23 A dependent territory for whose international relations a member is responsible may be designated by the Board as a developing member country for the purposes of Article 14 of the Convention if the member so requests, provided, however, that investments of that member in the dependent territory shall be excluded from cover. Section IV: Eligible Risks Eligible Risks Under Articles 11(a) and 11(b) 1.24 (a) The Convention provides that guarantees may be issued against losses resulting from non-commercial risks. Four types of such risks are specified in Article 11(a) of the Convention as eligible for cover. These are: (i) (ii) the currency transfer risk; the risk of expropriation and similar measures; (iii) the breach of contract risk; and (iv) the war and civil disturbance risk. (b) The Agency may cover the following additional, non-commercial risks in accordance with Article 11(b) of the Convention: (i) (ii) the risk of acts of terrorism and sabotage (as part of the war and civil disturbance risk); the risk of non-honoring of sovereign financial obligations;

18 Operational Policies Chapter 1 (iii) the risk of non-honoring of financial obligations by a state-owned enterprise or public authority; and (iv) the risk of non-enforcement of a final arbitral award rendered pursuant to a bilateral investment treaty. (c) In accordance with Article 11(b) of the Convention, the Board may approve by special majority other specific non-commercial risks that do not qualify for coverage pursuant to Article 11(a) of the Convention. The Board s approval for such coverage may be issued either with respect to a particular case or as a general authorization for cover. Such other risks shall in no case include the risks excluded under Paragraphs 1.56 through 1.57 below. Currency Transfer Risk Covered Causes of Loss 1.25 In accordance with Article 11(a)(i) of the Convention, the Underwriting Authority may provide coverage for losses arising from any introduction attributable to the Host Government of restrictions on the conversion of local currency into a freely usable currency, or into another currency acceptable to the Guarantee Holder and/or on the transfer outside the Host Country of either the local currency or the foreign currency into which the local currency was converted. In all cases, the restrictions must have been introduced after the effective date of the contract of guarantee and must apply to currency which represents returns on, or repatriated capital of, the guaranteed investment Coverage may be provided against active as well as passive restrictions on conversion and/or transfer Currency transfer risk coverage shall not be available for the freezing of assets of the Guarantee Holder or of the Project Enterprise. This risk may be covered under coverage for expropriation or similar measures under Paragraphs 1.31 through 1.42 below Contracts of guarantee shall require the Guarantee Holder to apply for conversion and/or transfer in accordance with the laws of the Host Country and to seek appropriate administrative remedies to obtain conversion and/or transfer. Currency and Exchange Rate for the Guaranteed Conversion 1.29 Contracts of guarantee shall specify the currency into which conversion is guaranteed. Such currency may be a freely usable currency within the meaning of Article 3(e) of the Convention or any other currency of a member agreed upon between the Underwriting Authority and the Applicant Contracts of guarantee shall also specify the basis, and the date, for determining the exchange rate or rates to be applied in calculating a claim

19 Operational Policies Chapter 1 Risk of Expropriation and Similar Measures Covered Causes of Loss 1.31 In accordance with Article 11(a)(ii) of the Convention, the Underwriting Authority may provide coverage for losses arising from measures attributable to the Host Government that have the effect of depriving the Guarantee Holder of its ownership or control of, or a substantial benefit from, its investment. Coverage may encompass, but is not limited to, measures of expropriation, nationalization, confiscation, sequestration, seizure, attachment and freezing of assets Coverage may be provided against measures that prevent the Guarantee Holder from exercising its rights of ownership or control over its investment, as well as measures that deprive it of the rights themselves. Such measures may take the form of breach of contract. In the case of equity interests, covered rights may take the form of rights to dividends and profits, rights of control and the right freely to dispose of the equity interest. In the case of non-equity direct investments, such rights may take the form of claims against the Project Enterprise for agreed payments, the right to transfer such claims to third parties and rights of participation in the management of the Investment Project. Coverage may be provided against measures that prevent the Guarantee Holder from using its funds or enforcing claims against debtors in the Host Country Coverage may also be provided against measures that deprive the Guarantee Holder of a substantial benefit from its investment to the extent specified in the contract of guarantee pursuant to Paragraph 1.40 below. Such measures may affect: (i) (ii) funds and assets of the Project Enterprise; the operations, financial viability or profitability of the Investment Project; or (iii) where the investment is a non-equity direct investment, the ability of the Project Enterprise to fulfill its obligations to the Guarantee Holder. Additional Criteria for Covered Causes of Loss 1.34 In accordance with Article 11(a)(ii) of the Convention, covered measures may include legislative or administrative actions. Legislative actions by themselves may be covered only if the expropriatory or similar legislation requires no further legislation or regulation for its implementation. Covered measures may also include administrative omissions where the administrative authority is under a legal obligation to act and has been notified by the investor, but not legislative omissions or decisions of independent courts or arbitral tribunals In all cases, the measure must be attributable to the Host Government. A measure may be attributed to the Host Government not only where the government itself takes or omits to take an action, but also where it approves, authorizes, ratifies or directs the action or omission For the purposes of Paragraph 1.35 above, the term Host Government may include a de facto government over the territory in which the Investment Project is located

20 Operational Policies Chapter 1 Governmental Regulations 1.37 In accordance with Article 11(a)(ii) of the Convention, coverage shall not be provided against non-discriminatory measures of general application that governments normally take in the public interest for the purpose of regulating economic activity in their territories, such as the bona fide imposition of general taxes, tariffs and price controls and other economic regulations, as well as environmental and labor legislation and measures for the maintenance of public safety. Coverage may, however, be provided against a measure that, while an exercise of the Host Government s regulatory powers, does not meet all of the aforementioned characteristics, especially if it discriminates against the Guarantee Holder, or is designed to have a confiscatory effect, such as causing the investor to abandon its investment or to sell it at a distressed price Coverage may also be provided against a series of measures by the Host Government that in their combined effect are expropriatory, even if each individual measure, taken alone, would appear to fall within the exception set forth in Paragraph In applying Paragraph 1.37 above, the Agency shall endeavor not to prejudice the right of a member country or of investors under bilateral investment treaties, other treaties and international law. Scope of Coverage 1.40 Contracts of guarantee shall specify the scope of coverage against expropriation and similar measures. The Underwriting Authority may, depending on the circumstances, elect to provide for coverage in cases of partial or total loss of the investment (a) A total loss of the investment may be deemed to have occurred if, as a result of a covered measure: (i) the Guarantee Holder has been unable to exercise a fundamental covered right for a period of three hundred sixty-five consecutive days or such other period as the contract of guarantee may provide; or (ii) the Investment Project has ceased operations for such period. (b) A total loss of the investment may also be deemed to have taken place if, after the occurrence of a covered event, the Agency agrees that the Guarantee Holder assign to the Agency all the Guarantee Holder s rights, claims or other interests related to the covered portion of the investment (a) Coverage may be provided in cases of partial or total loss in the event of permanent deprivation of: (i) covered rights of the Guarantee Holder; or (ii) funds and other tangible assets of the Project Enterprise

21 Operational Policies Chapter 1 (b) Coverage shall normally be limited to cases of total loss of the investment in the event of measures: (i) preventing the Guarantee Holder from exercising covered rights; or (ii) substantially diminishing the operations or profitability of the Investment Project. (c) In respect of non-equity direct investments, coverage may be provided in cases of partial or total loss resulting from measures of the Host Government against the Project Enterprise which make it impossible for the Guarantee Holder to receive its remuneration from the Project Enterprise for a period of three hundred sixty-five consecutive days or such other period as the contract of guarantee may provide. Breach of Contract Risk Covered Causes of Loss 1.43 (a) In accordance with Article 11(a)(iii) of the Convention, the Underwriting Authority may provide coverage against losses arising from a repudiation or breach by the Host Government of a contract with the Guarantee Holder in the cases set forth in Paragraph 1.44 below. In some cases, a breach by the Host Government of a covered obligation may also meet the criteria for currency transfer and expropriation risks. In such cases, a Guarantee Holder may base its claim on any of the applicable coverages. (b) For purposes of Paragraph 1.43(a), the Agency may also provide coverage for contracts between the Project Enterprise and the Host Government: (i) where the Guarantee Holder has an ownership interest in the Project Enterprise; or (ii) where the Guarantee Holder is a lender to the Project Enterprise and such Project Enterprise has pledged or assigned to the lender all or a portion of its rights under such contract with the Host Government. Denial of Justice 1.44 In accordance with Article 11(a)(iii) of the Convention, coverage shall be limited to cases where: (i) the Guarantee Holder does not have recourse to a judicial or arbitral forum to determine the claim of repudiation or breach; or (ii) a decision by such forum is not rendered within such reasonable period as shall be specified in the contract of guarantee, which shall be not less than two years from the initiation of a proceeding by the Guarantee Holder and the final decision by the forum; or (iii) a final decision cannot be enforced

22 Operational Policies Chapter For the purpose of Paragraph 1.44 above: (i) a judicial or arbitral tribunal forum shall be any competent court or arbitral tribunal that is independent from the executive branch of the Host Government, acts judicially and is authorized to make a final and binding decision; (ii) a Guarantee Holder may be deemed to lack recourse to such a forum where access to it is denied because, for example, the Host Government has established unreasonable procedural impediments; and (iii) a final decision may be deemed unenforceable where the measures taken by the Guarantee Holder have not resulted in enforcement after such time period as may be specified in the contract of guarantee. War and Civil Disturbance Risk Covered Causes of Loss 1.46 In accordance with Article 11(a)(iv) of the Convention, the Underwriting Authority may provide coverage against losses arising from any military action or civil disturbance in the territory of the Host Country. Contracts of guarantee shall in each case specify the covered events. Military Action 1.47 Coverage against military action or war shall extend to hostilities between armed forces of governments of different countries or, in the case of civil war, between armed forces of rival governments in the same country, including both declared and undeclared wars. Civil Disturbance 1.48 Coverage against civil disturbance shall include organized violence directed against the government of the Host Country that has as its objective the overthrow of such government or its ouster from a specific region, including revolutions, rebellions, insurrections and coups d état (a) Coverage may also be provided against civil disturbance, which takes the form of: (i) riot: an assemblage of individuals who commit public acts of violence in defiance of lawful authority; (ii) civil commotion: events which have all the characteristics of a riot but which are more widespread and of longer duration without, however, attaining the status of civil war, revolution, rebellion or insurrection; or (iii) terrorism: events of terrorism and sabotage. (b) The violent acts or events referred to in this paragraph may be directed at the Host Government, at a foreign government or foreign investment, including the government of the investor s country or the nationality of the investor

23 Operational Policies Chapter In all cases, the civil disturbance must have been caused or carried out by groups primarily pursuing broad political or ideological objectives. Acts undertaken to further labor, student or other specific interests and acts of kidnapping or similar acts directed against the Guarantee Holder shall not qualify for coverage as civil disturbance, but, if politically motivated, may be covered if the Board so decides under Paragraph 1.24(c) above. Place of Covered Events 1.51 A military action or civil disturbance occurring primarily outside the Host Country may be deemed to take place in the Host Country, and qualify for coverage, if it destroys, injures or damages tangible assets of the Investment Project which are located in the Host Country or interferes in the operation of the Investment Project. Coverage may be provided against military actions or civil disturbances that occur in a country contiguous to the Host Country and that affect an Investment Project located close to the border between the two countries, or against military actions or civil disturbances outside the Host Country that, for the period specified in the contract of guarantee, make it impossible to use transportation links that are vital to the operation of the Investment Project In all cases, coverage shall be restricted to cases where the assets of the Investment Project have been removed, destroyed or physically damaged, or where there have been other forms of substantial interference with the operation of the Investment Project. Coverage may be extended to losses due to business interruption, including operating costs and lost net income. Other Non-Commercial Risks Non-Honoring of Sovereign Financial Obligations 1.53 In accordance with Article 11(b) of the Convention, the Underwriting Authority may provide coverage against losses resulting from the failure of the Host Government to make a payment when due under an unconditional financial payment obligation or guarantee. This coverage does not require the investor to obtain an arbitral award, and it is applicable in situations when the financial payment obligation or guarantee of the Host Country is unconditional and not subject to any defenses other than payment. Compensation is based on the amount(s) that the Guarantee Holder is entitled to receive from the Host Government pursuant to the terms of the unconditional financial payment obligation or guarantee. Non-Honoring of Financial Obligations by a State-Owned Enterprise 1.54 (a) In accordance with Article 11(b) of the Convention, the Underwriting Authority may provide coverage against losses resulting from the failure of a state-owned enterprise or public authority to make a payment when due under an unconditional financial payment obligation or guarantee. (b) For the purposes of this coverage, the state-owned enterprise or public authority must be: (i) (ii) controlled by the Host Government; performing a public service or fulfilling a governmental function; and

24 Operational Policies Chapter 1 (iii) creditworthy, based on factors such as the state-owned enterprise or public authority s revenue base, funding sources, history of honoring financial obligations, applicable regulatory regime, the level of direct and indirect government support and other factors relating to financial viability. (c) This coverage does not require the investor to obtain an arbitral award, and it is applicable in situations when the financial payment obligation or guarantee is unconditional and not subject to any defenses other than payment. Compensation is based on the amount that the Guarantee Holder is entitled to receive from the state-owned enterprise or public authority pursuant to the terms of the unconditional financial payment obligation or guarantee. Non-Enforcement of Arbitral Award Rendered pursuant to Bilateral Investment Treaty 1.55 In accordance with Article 11(b) of the Convention, the Underwriting Authority may provide coverage against losses resulting from the failure of the Host Government to enforce a final arbitral award for a specified monetary amount rendered against the Host Government pursuant to the dispute resolution mechanism set forth in a bilateral investment treaty. Agreement or Responsibility for Actions or Omissions 1.56 In accordance with Article 11(c)(i) of the Convention, coverage shall exclude losses arising from any Host Government action or omission to which the Guarantee Holder has agreed or for which it has been responsible. The Guarantee Holder shall, in particular, be deemed to have been responsible for any such action or omission reasonably attributable to conduct, which is: (i) prohibited under the laws of the Host Country; and (ii) carried out by the Guarantee Holder, persons acting on its behalf or the Project Enterprise to the extent that the Guarantee Holder could have exercised its rights to prevent such conduct by the Project Enterprise. Exclusion of the Risk of Devaluation and Depreciation of Currencies 1.57 In accordance with Article 11(b) of the Convention, losses arising from the risk of devaluation or depreciation of currency shall not be covered. Exclusion of Events Before the Conclusion of the Contract 1.58 In accordance with Article 11(c)(ii) of the Convention, coverage shall exclude losses arising from any Host Government action, omission or other specific event occurring before the effective date of the contract of guarantee. In particular, no currency transfer coverage shall be issued under Paragraphs 1.25 through 1.30 above if the Applicant, on the date of the conclusion of the contract of guarantee, would only have been able to convert the currency of the Host Country accruing from its investment into the currency of guarantee at a rate below the lowest rate authorized by the exchange authority of the Host Country The exclusion referred to in Paragraph 1.58 need not affect the validity of contracts of guarantee in cases of events unknown to both the Agency and the Applicant at the effective date

25 Operational Policies Chapter 1 of the contract of guarantee or of circumstances at the effective date of the contract which lead only thereafter to a specific covered event giving rise to a loss

26 Operational Policies Chapter 2 Section I: Scope of Contracts of Guarantee Content Chapter Two: Contracts of Guarantee 2.01 The mutual rights and obligations of the Agency and a Guarantee Holder shall be set forth in a contract of guarantee between them. Contracts of guarantee shall specify the scope of coverage and the type of loss to be compensated, including any restriction of coverage and exclusions. Contracts of guarantee shall also include provisions on the period of guarantee, termination and amendment of the contract, amount and currency of guarantee, any standby coverage, representations, warranties and undertakings of the holder of a guarantee, disputes and applicable law, as well as provisions on premiums and claims. Consistency with Convention and Policies 2.02 Contracts of guarantee shall be consistent with the Convention and the Policies of the Agency. Section II: Period of Guarantee; Termination and Amendment Period of Guarantee 2.03 The period of guarantee shall commence on the date of execution of the contract of guarantee unless the contract provides for a later date (a) The period of guarantee shall be more than one year and not more than fifteen years, provided that, in special circumstances, the Underwriting Authority and the Applicant may agree on a longer period of up to twenty years. (b) Where the period of guarantee specified in a contract of guarantee is below the maximum limit that was approved by the Board, the Underwriting Authority may subsequently extend such period up to that limit. Termination and Amendment 2.05 Contracts of guarantee shall include provisions specifying the circumstances in which either party may terminate the contract. Such provisions shall allow the Agency to terminate the contract in cases such as: (i) default in the payment of premiums; (ii) false or misleading statements in the application for guarantee or in other information provided to the Agency; (iii) non-compliance with: (a) the laws or regulations of the Host Country;

27 Operational Policies Chapter 2 (b) the performance standards, environmental and social guidelines, and any other environmental and social standards referred to in the Agency s Policies, Procedures and Directives; or (c) the Agency s anti-corruption guidelines and any other integrity standards referred to in the Agency s Policies, Procedures and Directives; if such non-compliance pursuant to this subparagraph (iii) is not corrected within a period set forth in the contract of guarantee Contracts of guarantee shall specify the consequences of a misrepresentation, or of a breach of an undertaking by the Guarantee Holder Contracts of guarantee shall include provisions specifying how the contract may be amended. Section III: Amount and Currency of Guarantee; Standby Coverage Amount of Guarantee Calculation of the Amount of Guarantee 2.08 The amount of guarantee shall not exceed the percentage of cover (as defined in Paragraph 2.09 below) of: (i) the amount contributed by the Guarantee Holder to the Investment Project; and (ii) such other amounts included in the coverage as approved by the Underwriting Authority The term percentage of cover means the portion of the loss to be paid by the Agency to the Guarantee Holder in the event of a claim. The percentage of cover shall be agreed upon by the Underwriting Authority and the Applicant and shall in no case exceed: (i) ninety-nine percent for: (a) shareholder loans pursuant to Paragraph 1.05; (b) loan guarantees or other forms of security provided by equity investors pursuant to Paragraph 1.06; (c) non-shareholder loans and similar investments pursuant to Paragraph 1.09; (d) swaps and other hedging transactions pursuant to Paragraph 1.10(b); and (e) other medium- or long-term investments pursuant to Paragraph 1.10(c), if the Board so approves by special majority; and (ii) ninety-five percent for all other investments